By John Price
For almost a decade, Latin America and the Caribbean has been divided into two camps, the resource haves and the resource have-nots. As China experienced an investment bonanza, even political misfits like Argentina, Ecuador and Venezuela grew impressively. Meanwhile, much of Central America and the Caribbean, net importers of energy and minerals, struggled to grow, and were left out of the boom cycle.
The collapse of oil prices combined with cooling industrial metals has reversed the fortunes of most economies. In 2015, it will be the U.S., not China, driving Latin America’s economies. A strong dollar and overworked U.S. factories means Mexican and Central American manufacturers will expand. U.S. tourists will flock in even greater numbers to the Caribbean and American firms will go shopping abroad as assets at home grow costly vis-à-vis elsewhere.
Some analysts predict a mild recovery across South America after an abysmal 2014, but they are wishful thinkers. Almost every government in the southern continent is unprepared for the negative fiscal shock that awaits them. Oil exports and mining royalties contribute disproportionately to the coffers of most governments in the region, which grew bloated since 2005, increasing on average 14 percent per annum, measured in USD. Unraveling such largesse can be legally tricky (public sector layoffs), painful (curtailing pet projects) and socially destabilizing. Countries that have failed to invest during the boom …
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